So far, the wireless industry has been relatively unscathed
by the economic downturn. Operators
reported solid first quarter numbers, spectrum auctions in the U.S. and Canada
exceeded expectations, and there has been no pullback yet in capex plans. However, it appears that we are in store for
sustained economic challenges, with real casualties across the financial, auto,
and retail sectors--and the first bear market in some time. The new reality of commodity pricing is having
a measurable impact on consumers' pocketbooks. So as we move into the second half of the year, it's worth a closer look
at whether, and how, the wireless industry might be impacted. It should first be recognized that the economic troubles are
more acute in certain countries, so the fact that wireless is a global industry
is an important insulator. Equipment
and handset manufacturers are benefiting from the engines of a select number of
important geographies that are still racing to build out or upgrade networks
and are seeing steady organic subscriber growth. Stateside, I believe the industry has taken some important,
and uncharacteristically proactive steps as a hedge. For example, the "unlimited" plans are
getting more customers into predicable, post-paid pricing plans and have
greater potential for voice ARPU stabilization/accretion than dilution. Additionally, having more customers in these
sorts of plans potentially reduces costs, as there are fewer calls into
customer care. Concerns about the
economy plus financial market realities have also accelerated the pace of
industry consolidation, most notably Verizon-Alltel and Virgin-Helio--and
might have kept some "new" industry players from going too far in the 700 MHz
auction. The pricing of the 3G iPhone is
also a nod, in part, to economic jitters, recognizing the sub-$200 price point
that seems so critical for mass market adoption of a wireless device. So far the wireless
industry has held up pretty well. But
what happens if the economic situation worsens or is prolonged? Well, we won't see wireless subscribers
giving up their subscriptions. Cellular has become a "must have" for just about
everyone. In fact, wireless
subscriptions could see an initial uptick, as households consolidate their
number of "lines." For example, much of the fixed access line loss to date has
come from households switching their second line over to mobile and/or
broadband. If the economy continues to
be poor...